Bank Levy Manual

Chargeable equity and liabilities: netting: background

Under certain specified circumstances the rules permit liabilities that are recognised on a balance sheet of any relevant member to be reduced as far as possible (but not below zero) by netting off any asset balances that are recognised on the balance sheet of any relevant member. The remaining net balance is the figure to be taken into consideration when calculating the chargeable equity and liabilities.

The specific circumstances are where the liabilities and assets that are recognised on the balance sheets are:

with the same counterparty (or a member of the counterparty’s group)

covered by the same netting agreement

where certain further specified conditions apply, and

where the counterparty is either a third party or a group company whose liabilities are not subject to the bank levy.

The legislation refers to the entity’s ‘net settlement liabilities’ by which it means the entity’s liabilities (which are not ‘excluded liabilities’ (see BKLM330000)) to the extent they are covered by the same netting agreement.

It also refers to the entity’s ‘net settlement assets’ which means the entity’s assets to the extent they correspond to the counterparty’s net settlement liabilities.

To enable netting to take place there must be a legally enforceable agreement in place which allows, where a netting event occurs (these being termination of the arrangements as a result of the bankruptcy or insolvency of one of the parties), for any amounts owed to be set off against any amounts due such that there is one single net sum either due to or payable by the group member to settle all of the liabilities and assets in question that are covered by the agreement.

For guidance on when the netting should be brought into the bank levy calculation, for each type of entity or group, click on the following links:

relevant non-banking group: any UK resident bank which is a member of the relevant group but not a member of the relevant UK banking sub-group - see BKLM323200

relevant non-banking group: any entity other than a UK resident bank which is a member of the relevant group and a member of a UK banking sub-groups but not a relevant UK banking sub-group - see BKLM323300